Chart of the Day: Midterm Elections and Stock Market Returns

Introduction

Today is election day in the United States. What's at stake? All 435 seats in the US House of Representatives, 35 out of 100 US Senate seats, and 36 state governor races. Lately, we've seen quite a few articles in financial news citing historical data about how the stock market will react to various election outcomes. Given Milton's ability to aggregate different data sets, we wanted to compile a quick table to look at how the market has performed after every midterm election dating back to 1954.

Wall Street Base Case: Congress Is Divided

If 2016 taught us anything, it is that elections are unpredictable. However, the most likely scenario for today's election based on recent polling data from Nate Silver's FiveThirtyEight suggests the U.S. House of Representatives will flip control from Republicans to Democrats, while Republicans will maintain control of the U.S. Senate. It is important to note there are three election day scenarios that are quite plausible: Republicans keep control of both chambers, Democrats win both chambers, and our "Wall Street base case", which is divided leadership across both chambers.

Aggregating The Data

We aggregated all data for post-World War II midterm elections going back to 1954. While there are lots of way to present the data, we thought the following information was most relevant for providing historical context.

In the table below, we highlight the midterm election year, the incumbent President & political party, the incumbent political party controlling each chamber of Congress (before & after the midterm election), whether control flipped from one political party to another in either chamber of Congress, and how the S&P 500 performed over the very short-term (election day through end-of-year) and medium-term (election day + 12 months). See aggregated data below.

Interesting Takeaways

There is not enough data to make strong correlations about the various outcomes highlighted above since we are only highlighting midterm elections (non-Presidential election years). However, we thought the following data was interesting to provide context about how the stock markets perform after midterm elections:

On average, for the 16 time periods measured, the market rises +5% from Election Day to the end of the year (<2 months) and rises +11% over the next 12 months after Election Day.

On average, for the 7 out of 16 times when one or both chambers of Congress (House or Senate) has flipped from one party to another, the market rises +2% from Election Day to the end of the year (<2 months) and rises +11% over the next 12 months after Election Day.

On average, for the 4 out of 16 times when the House of Representatives has flipped from one party to another, the market rises +3% from Election Day to the end of the year (<2 months) and rises +15% over the next 12 months after Election Day.

On average, for the 6 out of 16 times when the Senate has flipped from one party to another, with the market rises +2% from Election Day to the end of the year (<2 months) and rises +13% over the next 12 months after Election Day.

Since 1954, there has been four instances when the incumbent Presidential party lost their "triple threat" during the midterm elections. The "triple threat" is the Presidency and control of both chambers of Congress. This happened during Obama 2010, Bush 2006, Clinton 1994, Eisenhower 1954. On average, after the incumbent Presidential party loses their "triple threat", the market rises +3% from Election Day to the end of the year (<2 months) and rises +15% over the next over the next 12 months after Election Day.

Contact Us

If you have any questions or comments about our findings or Milton in general, feel free to reach out directly to the Milton team at milton@apteo.co or myself at manan@apteo.co!

About ApteoApteo, the company behind Milton, is made up of curious data scientists, engineers, and financial analysts based in the Flatiron neighborhood in New York City. We have a passion for technology and investing, and we strongly believe that investing is one of the most reliable and effective ways to build long-term wealth. We build AI tools to help informed investors make better decisions.

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DisclaimerApteo, Inc. is not an investment advisor and makes no representation or recommendation regarding investment in any fund or investment vehicle.